A Business Plan for the Production of Crumb Rubber

by Solid-State Shear Extrusion

EnPro 351Spring 2003

Table of ContentsAbstract 3

Introduction 4

Methodology 9

Market Characterization 13

Market Size and Growth 17

Financial Analysis 22

Next Steps 28

2

Abstract

This Business Plan was developed by the EnPro Team to evaluate the market

opportunities for the Solid-State Shear Extrusion (SSSE) process, a technology developed

at IIT for the size reduction of rubber. The development of SSSE is in response to the

failure of conventional rubber pulverization methods to preserve polymer carbon chain

bonds while breaking cross-link bonds. By applying a combination of shear and

compression forces at room temperature, the Solid-State Shear Extruder yields rubber

granules with a higher level of cross-link reduction, low moisture content, and a high,

irregular surface area.

The EnPro Team conducted interviews with manufacturers who use crumb rubber

in their products, potential competitors who produce crumb rubber and a variety of rubber

associations and other sources. It was determined that the primary applications potentially

penetrable by SSSE crumb rubber are: Rubber Modified Asphalt, used to pave and patch

roads; Molded and Extruded Products such as flooring and mats; Athletic Surfaces,

including Playgrounds, growing applications of recycled rubber; and other Developing

markets, such as paints, are opportunities for the future of SSSE.

A thorough financial analysis was conducted, including developing a market

penetration estimate and a Profit and Loss Statement. It was determined that SSSE crumb

rubber is competitively priced and with an investment of approximately $3 million, can

look forward to a 5-10% share of the crumb rubber market over the next five years (2002-

2007). This penetration would produce the following Net Pre-Tax profitability:

Year 1 2 3 4 5Total Pounds (Millions) 13.2 28.4 45.8 69 97.8Total Dollars (Millions) 1.5 3.4 5.5 8.2 11.6Net Pre-tax Income (Thousands) 101 657 1341 2250 3409

3

Introduction

Recycling is a technological age solution to a consumer age problem. Paper,

plastic, and glass are all familiar elements in the recycling industry. New developments in

the field of recycling technology have led to the expansion of recycling into the realm of

scrap tire rubber.

Scrap tire rubber is an ideal candidate for recycling because of the large waste

stream associated with it. Each year, 283 million scrap tires are generated in the United

States (Scrap Tire Users Directory), with 12 million scrap tires produced in the state of

Ohio alone. (Scrap Tire News) Used passenger tires, used truck tires, defective tires from

the manufacturing industry, and buffings (long, thin strips of rubber) from the tire retread

industry are all plentiful sources of scrap tire rubber. Recent state-funded grants for the

use of recycled rubber in playgrounds and roads in states such as California,

Pennsylvania, and Florida have created a market for ground rubber.

Rubber, a thermoset polymer, is different from many thermoplastic polymers in

the sense that it is vulcanized. The polymer chains are cross-linked in such a way that

rubber cannot be melted for reuse. Plastics recycled in the more familiar fashion include

polyethylene terephthalate (PETE), high and low density polyethylene (HDPE and

LDPE), and vinyl. (American Plastics Council) These thermoplastic varieties are used in

many food and beverage packaging applications, and can be melted for incorporation in

new products. Instead of melting scrap rubber, it is ground into smaller pieces for

integration into new products.

4

There are a few conventional methods to grinding rubber: ambient grinding,

cryogenic grinding, and buffing. Each of these methods can produce rubber granules of

varying sizes, but can pose problems in the end product of the rubber.

The ambient grinding method of rubber pulverization takes place at ambient

temperature and higher, as the rubber is ground by shearing and tearing action. Particles

have an irregular shape, with high surface area, but can experience thermal degradation

due to high operating temperatures. Cryogenic pulverization starts with reducing the

temperature of the rubber to below 90 degrees F, usually by contacting the rubber with

liquid nitrogen. At these low temperatures, the material is very brittle, and can easily be

shattered into small particles by hammermills. Cryogenic processing tends to result in

smooth, regular granules of rubber. Either ambient grinding or cryogenic processes may

be followed by a crackermill, where the rubber is passed through two large serrated

rollers to cut the rubber into smaller pieces. (Scrap Tire News Online) Buffing is used to

produce long, thin strips of scrap rubber. While tire buffings can be used in similar

applications to rubber granules, it is most often a precursor to ambient and cryogenic

grinding processes.

While conventional methods of recycling rubber yield possibilities for use in new

products, there has yet to be a commercially implemented process that retains the

chemical properties of virgin rubber. When scrap rubber is shredded and grinded, the long

polymer chain bonds are broken with the same frequency as cross-link bonds. The Solid

State Shear Extrusion (SSSE) process, being developed at the Illinois Institute of

Technology (IIT), addresses this problem by selectively breaking cross-link bonds, a

phenomenon called devulcanization. The particles produced in SSSE have a cross-link

5

density reduction of approximately one third that results in particles with chemical

properties more similar to virgin rubber.

Since 1995, Dr. Hamid Arastoopour, the Chairman of the Chemical and

Enviromental Engineering Department at IIT, has been developing this new method of

pulverizing rubber. This process reduces the size of rubber, or other solid material, into

small granules without the high level of chemical degradation that can occur during other

rubber grinding processes. The process was developed based on the strain energy storage

theory, indicating that a combination of compressive and shear deformation can lead to

breakage of chemical bonds within the rubber. (Pulverization of Low Density

Polyethylene Under High Shear and Compression) Dr. Arastoopour has found a unique,

low-energy method of reducing the scrap tire waste stream. Although this patented

process is still in the laboratory stage, the EnPro Team believes it may be advantageous to

invest in a full-scale production version of the machine for the manufacturing of crumb

rubber.

This technology presents several marketing possibilities, including:

• Sales of the crumb rubber produced by SSSE

• Licensing of the SSSE technology

• Sales of SSSE crumb rubber manufacturing equipment

Therefore, the goal of this EnPRO is:

To develop a Business Plan for the Solid State Shear Extrusion method of

producing pulverized rubber. The team has chosen to focus on the area of sales of crumb

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rubber produced by SSSE, because of the more comprehensive nature of available

information about the market for crumb rubber.

This Plan includes an analysis of:

• SSSE technology

• Crumb rubber market in North America

• Recommendations regarding the penetration of a series of applications,

which would be served effectively through the SSSE Process.

Some of the steps the Team took to complete this task include:

• Studying the SSSE process

• Exploring initial pricing estimates for scale-up of the operation

• Conducting interviews with end-users of crumb rubber

• Conducting interviews with manufacturers of crumb rubber

After taking these preliminary steps, a Business Plan was constructed. Each

section of this Business Plan is described below:

• Methodology defines the characteristics of rubber granules produced by

several of the patented SSSE processes, and defines interviews

accomplished with end-users and potential competitors.

• Market Characterization describes the applications and characteristics

of crumb rubber from the end-user perspective, as well as an evaluation of

the characteristics of SSSE through the eyes of its competitors, and

provides a detailed description of the market environment.

7

• Market Size and Growth reviews information about the total crumb

rubber market, characterized by application, and describes growth

experienced during the last 5 years and growth expected over the next 5

years.

• Financial Analysis defines the SSSE technology’s growth scenario, which

the EnPro Team recommends when entering the crumb rubber market,

supported by multiple market penetration scenarios, resulting in a five

year Pro Forma Profit and Loss Statement.

8

Methodology

SSSE Particle Characteristics

The SSSE process creates pulverized crumb rubber with no chemical additives.

This purely mechanical process also yields crumb rubber with no moisture. The rubber

particles undergo a reduction in cross-link density and show a high surface area to assist

in bonding. The exact values of these changes, as well as the size distribution, are specific

to which SSSE process is used. The Team focused on the 5:1 screw 1SSSE and 2SSSE,

as well as the 3:1 screw 1SSSE. The 5:1 screw has a higher compression ratio but lower

output than the 3:1 screw. “1SSSE” signifies that the rubber was run through the extruder

once, while “2SSSE” denotes twice.

5:1 Screw 1SSSE 5:1 Screw 2SSSE

Mesh Size

Surface area

Cross-link Reduction

Mesh Size

Surface area

Cross-link Reduction

30-40 1600m2/g 21% 30-40 2200m2/g 28%

170-60 2800m2/g 34% 170-60 2300m2/g 33%

Mesh Size

Distribution (%)

Proposed Price (cents/lb)

Mesh Size

Distribution (%)

Proposed Price (cents/lb)

150 6.7 49 150 4.6

No Data

70 12.7 22.5 70 19.140 13.4 14.4 40 22.930 23.9 13.5 30 29.825 25.4 12.5 25 20.620 13.4 12 20 3.110 4.5 9.5

9

3:1 Screw 1SSSE

Mesh Size

Distribution (%)

Proposed Price (cents/lb)

70 0.8 22.540 6 13.830 8.6 13.425 18.4 12.520 16.8 11.510 27.3 9.56 19.2 84 2.8 6.5

Interviews

In the process of researching the crumb rubber market, 54 different companies in

the rubber industry were interviewed, of which 17 were producers of crumb rubber

producers. While these companies are not possible consumers for crumb rubber made by

SSSE, they are potential users of the SSSE equipment. They also assisted in obtaining a

more accurate assessment of the current crumb rubber market.

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Producers of Crumb Rubber InterviewedBridgestone FirestoneBristow RubberCRM Co, LLCEdge RubberEmert GrindingEnvironmental Recycling TechnologiesFirst National Recovery Inc.Goodyear TireGreenMan Technologies of CaliforniaGSR Recycling IncJai Tire IndustriesNorthwest Rubber, ColoradoPheonix Recycled ProductsRebound Rubber RecyclingRubber Technology InternationalUniroyalWest Coast Rubber Recycling, LLC

The remaining companies were end users in tire, flooring and surfaces, auto,

asphalt, molding, paint, and roofing industries. These companies were interviewed to

gauge the consumer market reaction to the new technology.

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Market Segment CompanyN/A Rubber Manufacturers AssociationAsphalt Advanced Recycling Services

Crafco

FNF Construction

Manhole Adjusting ContractorWestern States Surfacing

Auto Amorium Industries

Envirotech Extrusion Inc.Rubber Queen

Flooring and Surfaces Advanced Rubber Surfacing Products

Blacklidge Emulsions

Centaur Floor SystemsDinoflex Manufacturing Ltd.

Dodge Regupol

No Fault IndustriesPlaydek International

Pro Tech Rubber

RB Rubber Products IncRoll-Tech Resilient Surface Supply

RTHSafe Guard

Surfaces AmericaGaskets Aero Rubber

Gem Inc

RFI Seals And Gaskets

SCE GasketsMolded and Extruded Products Carsonite International

Concrete Precast Systems

Rubber Materials Inc.

Scientific DevelopmentsPaint and Coatings MD-Both

PPG

WolstenholmeRoofing Bridgestone Firestone

Spech-Chem Inc.Tire Bridgstone Firestone

Goodyear TirePomp's Tire Service

Uniroyal

WingfootTire Buffings Premier Rubber

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Market Characterization

As indicated in the Methodology Section, the EnPro Team interviewed 33 end-

users of crumb rubber, 17 producers of crumb rubber, and 7 other companies in the crumb

rubber industry. The Team determined there are a large number of uses for ground

rubber, characterized by the specific applications for crumb rubber. As this market is

segmented into regions that are typically defined by state boundaries/financial support for

the production of crumb rubber, the EnPro Team found this detailed assessment was

beyond the scope of its capabilities. Thus, this Business Plan focuses on national market

perspectives.

The market assessment concluded that there are two major types of applications

for the crumb rubber produced through the SSSE process. The first type of applications

includes:

• Injection Molding/Extruding - roof shingles, plastic/rubber blends, mats and sheeting, etc.

• Flooring – Interlocking anti-fatigue mats for use with people or livestock, anti-slip mats for use in the shipping industry, underlay mats for use under traditional flooring (e.g. carpet, hardwood, tile), and pour-in-place floors.

• Athletic Surfaces – Running tracks, basketball courts, tennis courts, etc.

• Playgrounds – The largest segment of the athletic surfaces type market for crumb rubber.

The use of crumb rubber in these products helps reduce fatigue, deaden

vibrations, dampen sound, absorb impacts (such as falling children on a playground), is

appealing to consumers because of its recycled nature, and is often cheaper than

traditional materials used in these products. These applications typically use sizes of

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crumb rubber that range from 20 mesh to 1"; the largest size our process produces is

about 1/8"

Our end-user interviews indicated that the unique characteristics of crumb rubber

produced by SSSE would not have any effects (good or bad) on these products.

If the pricing of SSSE-produced crumb rubber on these sizes (20 mesh and larger)

were competitive (between 9¢ and 20¢ / lb), it could successfully penetrate this sector of

the crumb rubber market. The Team’s price estimates have indicated that SSSE-produced

crumb rubber could be profitably sold for between 9¢ and 17¢ / lb, with the wide

variation being due to differences in raw material cost and availability of a market for all

mesh sizes produced by the SSSE process (inability to sell certain mesh sizes would force

increases in the selling price for other sizes). The market price ranges the Team found

varied by state and even within specific states. For example, the range of 9-20¢ / lb for

comparably sized crumb rubber was seen just in the state of California. A meaningful

ingredient of this price difference was the raw material cost, which varies significantly by

region (i.e. the state of California pays $20/ton to companies that dispose of waste tires;

one interviewed company in Colorado was paid $1 per tire they took; a company in South

Carolina reported paying up to 0.9¢ / lb for unground rubber).

The EnPro Team recommends that more market research be conducted to

determine the reason for large price disparities across North America, to develop a sense

of raw material price based on region, and to determine how this data would influence the

SSSE technology’s ability to compete in different areas of the country.

The second type of application for which SSSE-produced crumb rubber could be

used is RMA.

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• Rubber Modified Asphalt – Used in highways to help dampen sound and increase

highway lifetime. While it is more expensive than traditional asphalt, its longer lifetime saves money in the long run and several states (notably Arizona, California, and Florida) invest heavily in RMA. RMA does not perform well in cold (i.e. northern) climates.

This application typically uses a government-specified distribution of sizes

between 40 mesh and 20 mesh. The current crumb rubber price in the Arizona/California

area for these size distributions is 11¢ / lb.

The unique characteristics of the SSSE-generated crumb attracted interest from

RMA companies, but they would need good results from tests of RMA created with this

crumb rubber before switching from their current suppliers.

The EnPro Team recommends that tests be performed to determine the:

• Reduction in cross-link density from tire rubber – currently devulcanization test results are limited to rubber that originally had much less cross-linking than tire rubber and thus is not directly comparable.

• Thermal conductivity of crumb rubber produced by this process as compared to currently used crumb rubber (higher conductivities are better).

• Heat generated, temperatures reached, and viscosity (lower is better) of asphalt mixed with our crumb rubber when processing into asphalt concrete (asphalt is the ‘oily’ part, asphalt concrete is what roads and parking lots are made out of) and how this compares to currently used processes.

• Estimates of noise reduction, reduction of wear on vehicle suspensions, and durability of RMA created with our crumb rubber as opposed to crumb rubber currently on the market.

There is apparently a market for devulcanized rubber (partial devulcanization is

one of SSSE-generated crumb rubber’s main characteristics) in the tire industry – one of

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the grinders we interviewed produced devulcanized rubber and sold it for use in tires.

The Team was unable to gather more information on this market segment.

There are also potential markets in future adhesive and paint products (one of the

end-user companies we interviewed was researching use of ultra-fine rubber particles –

around 10 microns in diameter – in these applications). The time periods necessary for

these products to come to market – and the potential sizes of the markets – are uncertain

at this time.

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Market Size and Growth

The crumb rubber market in North America is a growing market that consumed

996 million pounds of recycled rubber in 2002. Divided as follows:

Summary of Crumb Rubber Market

Application 2002 Market Size(millions of pounds)

RMA 296Molded Products 307Sport Surfacing 141a) Tracks 63b) Playgrounds 80Miscellaneous 43Areas that are not applicable to SSSE

209

Total applicable market to SSSE

787

Rubber Modified Asphalt (RMA)

Rubber modified asphalt is the second largest market for crumb rubber overall.

However, it offers the largest market for SSSE rubber because of the SSSE

characteristics. Generally about 30 lbs. of crumb rubber is used for every ton of asphalt.

The rubber modified asphalt is only used in top layers of roads, but not in structural

layers. Currently the U.S. uses about 550 million tons of asphalt per year. At most only

½ of all asphalt used would be RMA (due to the structural concerns).

The total RMA market is about 296 million pounds of crumb rubber. Since RMA

is used in highway applications, its use must be approved by each state; use is limited to

only 4 states at the present time. These states are California, Arizona, Texas and Florida.

California uses only 15% RMA of its total asphalt usage compared to Arizona using 85%.

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The growth is limited by climate, because RMA does not work well in cold climates.

Other states that are likely to use RMA by 2004 include those primarily in the sunbelt

area:

Georgia North Carolina Maryland Oklahoma New Jersey Pennsylvania New York South Carolina

Canada (Montreal)

Despite the addition of these states, the budgetary limitations of many of these

states will place a short-term limit on the growth of the crumb rubber market. Without

these budgetary restraints the RMA market could have grown to 500 million pounds per

year by 2005. As such, the feeling in the marketplace is that crumb rubber used in the

RMA applications will grow to 400 million pounds per year by 2005. This represents a

growth of 10% per year. Presuming the budgetary dilemma is rectified the subsequent

growth during 2006 and 2007 could be as high as 20% per year. Bringing the total in

2007 to just under 570 million pounds.

Molded Products

The largest market for crumb rubber is in molded products. However it is difficult

to assess what percent of the market is accessible to SSSE due to the wide range of

products that fall within that category. The molded products that can utilize SSSE rubber

are various types of rubber mats and molded roof shingles. The rubber mat market

includes so many types of mats for so many uses that it was not possible to quantify the

market size.

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The roofing market is comprised of two major portions; asphalt shingles and all

other shingles including wood shake, metal, and ceramic. Asphalt shingles comprise

80% of the market and everything else takes the remaining 20%. Rubber molded

shingles generally replace wood shake or ceramic shingles and are therefore only a small

niche market in the roof industry (likely less than 5%). However, asphalt shingles that

are modified with crumb rubber for durability could claim a greater portion of the market.

Last year 152 million squares of asphalt shingles were sold (1 square = 10’ X 10’ = 3

bundles of shingles containing 20 shingles each). Since asphalt shingles are 80% of the

market the remaining market (wood shake, ceramic, rubber, metal) would be about 38

million squares. There is potential for growth in the roofing market because the life of

rubber shingles far exceeds wood and is less expensive than ceramic.

The total market for molded products is 307 million pounds of crumb rubber per

year and it is likely to grow at 3-5% (4% average) per year over the next 5 years,

producing 375 million pounds per year, by 2007.

Sports Surfacing

Sport surfacing, which includes any rubber track or tennis court and playgrounds

that use rubber flooring, is a very accessible market for SSSE rubber. The majority of

sports surfaces in the U.S. use recycled rubber. Running tracks and playgrounds use

close to 100% recycled rubber.

There are approximately 800-1000 new running tracks built per year and about

twice that number in old tracks resurfaced. Each new track uses 40,000 pounds of rubber

and each resurfaced track uses 15,000 pounds. Tracks use close to 100% recycled rubber,

but most of that rubber is not recycled tire rubber. The SSSE process can be used on

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many types of rubber/plastic but that research was beyond the scope of this project. The

industry cannot provide any approximation of the number of playgrounds in existence,

but estimates that several thousand new playgrounds are built per year.

The running track market is very steady and probably will not grow or decline

significantly in the long term. However, playgrounds are a fast growing market for

crumb rubber, due to the added safety of rubber playground flooring. Lobbying and

legislation are very supportive of using recycled rubber in playgrounds to replace existing

wood chips or sand.

The market is 141 million pounds of crumb rubber; the expected growth rate is 6-

8% (7% average) per year, reaching 200 million pounds per year.

Miscellaneous Recycled Rubber Products

The remaining market of miscellaneous recycled rubber products is not very well

defined. Many of these products do not use SSSE’s characteristics or are small niche

markets that still need to be explored. Out of the other markets, SSSE can be used in

rubber plastic blends and tires. Rubber plastic blends include some roof shingles and

false wood made of rubber, plastic, and sawdust that are more of a niche market.

Although tire manufacturers use large quantities of crumb rubber they produce

virtually all of it internally (only 1 company we interviewed sells to tire manufacturers).

The tire manufacturers may be interested in purchasing machinery to produce SSSE

rubber but they are not worth pursuing as a possible market to sell rubber crumb directly.

An opportunity may exist with these manufacturers because they use a significant number

of byproducts either in their processes or in side businesses of the tire plants.

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The miscellaneous market for crumb rubber accounts for 43 million pounds in

2002. It is expected to grow at the rate of 3-5% (4% average), reaching 55 million

pounds per year by 2007.

Summary

The following table summarizes the growth forecast for each of the market

segments within the crumb rubber industry.

Summary of Crumb Rubber MarketApplication 2002 Market Size Est. Annual Est. 2007 Market

(millions of pounds)

% Growth Size (millions of pounds)

RMA 296 3yrs at 10% 2 yrs at 20%

570

Molded Products 307 4% 375Sport Surfacing 141 7% 200Miscellaneous 43 4% 55Areas that are not applicable to SSSE

209 N/AN/A

Total applicable market to SSSE 787 9% 1230

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Financial Analysis

The Market Penetration of the SSSE process:

RMA

As stated in the market growth discussion, RMA is projected to be the most

receptive marketplace for the SSSE process. As such, the market penetration would

reach 10% by 2007, starting at 2% in the first year, gaining another 2% per year, through

2007.

Molded Products

A more limited market penetration than RMA, molded products would likely see

a penetration reaching 5% by the end of 2007. The initial penetration is estimated at 1%,

gaining another 1% per year.

Sports Surfacing

Factors contributing to the market penetration in this area are the fall rating and

handicap accessibility factor. As such, market penetration for SSSE can be estimated at

10% by 2007, starting at 2% in the first year, gaining another 2% per year.

Miscellaneous

Because of the diversity of products in this area SSSE will penetrate 5% of the

market by 2007, starting at 1% in the first year, gaining another 1% per year.

Summary

Based on the market growth and penetration forecasted above, the Team’s

calculation, and the market response, the crumb rubber produced by the SSSE process

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can be sold for an average of 11.9 cents per pound. The table that follows produces a

revenue stream for the SSSE process that begins at approximately $1.5 million in year

one growing to $11.6 million in year five.

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2002 Year 1 Year 2 Year 3 Year 4 Year 5Rubber Modified Asphalt MarketMarket Size (Pounds) 296,000,000 325,600,000 358,160,000 393,976,000 472,771,200 567,325,440 Market Share 2% 4% 6% 8% 10%Share of Market (Pounds) 6,512,000 14,326,400 23,638,560 37,821,696 56,732,544Revenue (Average 11.9c/lb) $774,928 $1,704,842 $2,812,989 $4,500,782 $6,751,173

Molded ProductsMarket Size (Pounds) 307,000,000 319,280,000 332,051,200 345,333,248 359,146,578 373,512,441 Market Share 1% 2% 3% 4% 5%Share of Market (Pounds) 3,192,800 6,641,024 10,359,997 14,365,863 18,675,622Revenue (Average 11.9c/lb) $379,943 $790,282 $1,232,840 $1,709,538 $2,222,399

Sports SurfacesMarket Size (Pounds) 141,000,000 150,870,000 161,430,900 172,731,063 184,822,237 197,759,794 Market Share 2% 4% 6% 8% 10%Share of Market (Pounds) 3,017,400 6,457,236 10,363,864 14,785,779 19,775,979Revenue (Average 11.9c/lb) $359,071 $768,411 $1,233,300 $1,759,508 $2,353,342

MiscMarket Size (Pounds) 43,000,000 44,720,000 46,508,800 48,369,152 50,303,918 52,316,075 Market Share 1% 2% 3% 4% 5%Share of Market (Pounds) 447,200 930,176 1,451,075 2,012,157 2,615,804Revenue (Average 11.9c/lb) $53,217 $110,691 $172,678 $239,447 $311,281

Total Pounds 13,169,400 28,354,836 45,813,496 68,985,495 97,799,949Total Dollars $1,567,159 $3,374,225 $5,451,806 $8,209,274 $11,638,194

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Profit and Loss Statement Assumptions

Revenue

• We will assume crumb rubber producing facilities will be running 365 days per year.

• Supplemental income will come in the form of compensation for taking scrap tires.

• In order to produce 13 Million pounds of crumb rubber the process requires 19 Million pounds of raw material because of the approximate 1/3 waste.

• At 25 pounds per tire this would require 760,000 tires.

• At 50 cents per tire this would produce $380,000 of supplemental revenue.

Management Cost

• Total management costs will start at $180,000 per year.

• The president’s responsibilities include sales and administration. President’s salary will be $100,000 per year plus a percentage of the profitability.

• To support the president the company will have two support staff who will be collectively paid $80,000 per year.

• This number will increase at 4% annually to account for annual raises.

Rent

• Rental of support facilities for the production of crumb rubber is estimated at $15 per square foot.

• Rental space will be approximately 10,000 square feet.

• Total rental costs will be $150,000.

• This number will increase at 4% annually to account for increases in rent.

Marketing expenses

• The sales force will be commission based pay at a 5% commission on all sales.

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• Out of pocket expense allocation of $5,000 per sales representative.

• Five sales reps in year one, increase by one per year

• This number will be determined by the amount sold in any given year.

• Promotional costs including trade shows, advertising, etc. are estimated at $100,000 beginning in year one and increase at $50,000 per year thereafter.

Production Costs (estimated by IIT faculty)

• Electrical costs are estimated at 0.35 cents per pound of crumb produced.

• Labor is estimated at 3.95 cents per pound of crumb produced.

• Overhead is estimated at 80% of labor.

• Maintenance is estimated at 1.13 cents per pound of crumb produced.

• Taxes and Insurance are estimated at 1.13 cents per pound of crumb produced.

Total production cost= $1,281,000

Equipment Purchase/Depreciation

• Each extruder produces an estimated 13 Million pounds of crumb rubber per year and costs $280,000.

• Supporting each extruder will be a grinder, a shredder and a conveyor system which collectively will cost $270,000.

• Depreciation will be based on a twenty year amortization schedule.

Estimated Net Pre-tax Income

• Based on the assumptions presented above the net pre-tax income for the SSSE process is as follows:

Year 1 2 3 4 5Net Pre-tax Income $101,187 $657,027 $1,340,832 $2,250,060 $3,409,059

Investment Required

• Based on the assumed revenue stream, third party investment funding will be necessary for years 1, 2, and 3; the company should be able to support any further investment based on its own profitability.

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• An investment of $500,000 to support the development of the SSSE Process from a laboratory to an operating stage.

• Investment in year one is $ 1 Million.

• Investment in year two is $ 1 Million.

• Investment in year three is $ 500,000.

Total Investment Commitment = $2.5 million

Profit and Loss Statement

Year 1 2 3 4 5Share of Market (Pounds) 13,169,400 28,354,836 45,813,496 68,985,495 97,799,949Revenue (Average 11.9c/lb) $1,567,159 $3,374,225 $5,451,806 $8,209,274 $11,638,194Tire Income $376,269 $810,138 $1,308,957 $1,971,014 $2,794,284Total Revenue $1,943,427 $4,184,364 $6,760,763 $10,180,288 $14,432,478Fixed Costs Management Cost $180,000 $187,200 $194,688 $202,476 $210,575Rent (10,000 sq ft at $15 per) $150,000 $150,000 $150,000 $150,000 $150,000Variable Costs Electrical $47,410 $102,077 $164,929 $248,348 $352,080Labor $520,191 $1,120,016 $1,809,633 $2,724,927 $3,863,098Overhead (80% labor) $416,153 $896,013 $1,447,706 $2,179,942 $3,090,478Taxes & Insurance $148,814 $320,410 $517,693 $779,536 $1,105,139Maintenance $148,814 $320,410 $517,693 $779,536 $1,105,139Sales Expenses ($5,000/rep) $25,000 $30,000 $35,000 $40,000 $45,000 Sales Team (5% commission) $78,358 $168,711 $272,590 $410,464 $581,910Promotional Expenses $100,000 $150,000 $200,000 $250,000 $300,000Depreciation $27,500 $82,500 $110,000 $165,000 $220,000 Total Expenses $1,842,241 $3,527,337 $5,419,931 $7,930,228 $11,023,419Net Pre-tax Income $101,187 $657,027 $1,340,832 $2,250,060 $3,409,059Cumm Pre-tax Income $101,187 $758,213 $2,099,045 $4,349,105 $7,758,164

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Next Steps

Considering the great potential for a viable business built around SSSE crumb

rubber, it is the recommendation of this EnPRo Team that research should continue.

Further research should be conducted in the following areas:

• Pricing research to determine the reason for market price disparities, to develop a sense of raw material price based on region, and to determine how this data would influence the SSSE technology’s ability to compete in different areas of the country

• Particle Characteristic research to find the cross-link reduction and thermal conductivity for SSSE crumb produced from scrap tire sources

• Rubber Modified Asphalt research to test the heat generation, viscosity, noise reduction, and durability of RMA made with crumb rubber produced by SSSE

Additionally, a scale-up of the SSSE technology must be undertaken. With a full-

scale version of the extruder in place, production, energy consumption, and temperature

estimates can be verified.

During the market analysis interviews, several interviewed parties expressed

interest in being a part of the continuing development of SSSE:

Rick MoorePhoenix Recycled Products, Inc.Batesburg, SC803-532-4425843-723-1625

Jerry Dodenhoff, PresidentGreenman Technologies of California, Inc.Azusa, CA 91702 626-633-1174

David Emert, OwnerEmert GrindingSomerset, PA814-443-4853814-445-9886

Aaron Lebedow and Bob Anderson will contact these companies to determine the depth of their interest in the SSSE Process.

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